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2001 Annual Report
Next Steps:

Table of contents

  • Page 1
    2 0 0 1 A n n u a l Re p o r t Next Steps:

  • Page 2
    Next Steps: In 2001, w e m ade great strides tow ard transform ing Textron into a coordinated netw ork of globally strong businesses and pow erful brands in attractive industries. This report discusses those steps and w here w e go from here.

  • Page 3
    Always customers first. pages 8-9 Strengthening our business mix. pages 10-11 Unleashing the power of the enterprise. pages 12-15 Textron Six Sigma. pages 16-17

  • Page 4
    ...activities and asset impairment w ritedow ns. * * Free cash flow before restructuring w as $384 million in 2001 and $464 million in 2000. Textron Inc. (NYSE: TXT) is a $12 billion multi-industry company ..., among others. M ore information is available at w w w.textron.com. 2 Textron Annual Report

  • Page 5
    ...ented operational im provem ents, cost reductions, and new product innovations. Notable achievem ents of 2001 included: Bell Helicopter continued to develop its V-22 tiltrotor program , w ith nine aircraft scheduled... foundation for long-term grow th and success in the future. Textron Annual Report 3

  • Page 6
    ... grow th rates, cyclicality and financial perform ance. With these criteria as our guide, in 2001 w e lessened our dependence on cyclical businesses w ith declining future grow th rates by divesting...as w e becom e a m ore coordinated, efficient netw ork of com panies. 4 Textron Annual Report

  • Page 7
    ... grow th and value for our shareholders. Unfortunately, during 2001 our ROIC slipped to 9 percent, slightly below our w...Step We've done much to transform our company in 2001, but 2002 will be a year of wider and ...in facing the m ajor challenges of 2001 and helping us create a m uch stronger Textron ...

  • Page 8
    ... leverage the collective strengths of the enterprise. The realigned segments are reflected on pages 6 and 7. All historical information found in the financial section of this report is based on our organizational structure in place during...

  • Page 9
    ... im prove enterprise excellence through diligent im plem entation of Textron Six Sigm a applications, effective supply chain m anagem ent and consolidation of IT infrastructure Textron Annual Report 7

  • Page 10
    ... through program s such as the Chairman's Aw ard for Innovation. Last year's finalists should generate $400 m illion in organic sales over the next decade. 8 Textron Annual Report

  • Page 11
    customers first. Textron Golf, Turf & Specialty Products puts custom ers like Ron E. Jackson, President and CEO, M eadow brook Golf, first by providing a one-stop-source for E-Z-GO golf cars, Jacobsen turf products and Cushm an m aintenance vehicles, backed by in-house financing from Textron ...

  • Page 12
    ... and expect nothing less than brand superiority, customer loyalty, proprietary technology and strong financial performance. In 2001, w e determ ined that, w hile Textron Autom otive Trim w as a business w ith... to satisfy custom er needs and com pete in the m arketplace. 10 Textron Annual Report

  • Page 13
    business mix. Business M ix Criteria Industry Attractiveness Industry size and grow th rate Custom er concentration Pricing flexibility Barriers to entry Cyclicality Product differentiation Distribution com plexity Fit w ith Textron capabilities and strategies Business Strength A) Business M odel ...

  • Page 14
    Next Steps: Unleashing the power Supply Chain M anagement An Integrated Approach to Unlocking Value and Delighting Our Customers Supply Base Demand Forecast Plan & Schedule Strategic Sourcing Manufacturing/ Assembly & Testing Asset/ Inventory Management Distribution & Logistics Field Service...

  • Page 15
    ... and reduce costs. In 2001, w e m ade significant...apparent - strategic sourcing. With annual production and non-production purchases totaling...to realize savings. For exam ple, in 2001 w e conducted several reverse auction events ...in m ore than $5 m illion in annual savings on a com bined $25 m ...

  • Page 16
    ... com m unications across our enterprise. Through this shared service, w e expect annual savings of 10 to 15 percent betw een now and 2004 through com puter standardization... savings and operational im provem ent. In 2001, TGS supported operations in 33 different countries. 14 Textron Annual Report

  • Page 17
    of the enterprise. Textron Inform ation Services, our new est internal shared service organization, is designed to help Textron collaborate and leverage our capabilities m ore efficiently, w hile reducing costs across our organization.

  • Page 18
    ... ply, w e expect Textron Six Sigm a to play a crucial role in m aking each of our businesses stronger, w hile creating a unifying culture of enterprise excellence. 16 Textron Annual Report

  • Page 19
    Textron Six Sigma Textron Six Sigma Exceed Customers' Expectations While Creating A Unifying Culture of Enterprise Excellence Accelerating Grow th & Innovation Customer Satisfaction Enterprise Excellence Eliminating Waste Reducing Variability At Textron Fastening System s, w e have already ...

  • Page 20
    ...REPORT OF M ANAGEM ENT, REPORT...2001 6.7) % 6.1 2.7 4.5 27.2 6.7) % 2000 10.3) % 8.3 8.8 11.3 27.5 10.8) % 1999 9.0) % 7.7 9.1 12.4 27.6 10.1) % 2001... 1,996 3,085 691 $ 13,090 2001 $ 311 158 46 120 193 828 ... expenses. In 2001, special charges ...Corporate. 2001 Revenues 6% Finance $709 2001 Segment ...

  • Page 21
    ...2001, Textron's reportable segments include Aircraft, Automotive, Fastening Systems, Industrial Products and Finance. During 2001... decrease in the annual effective tax rate from 35.5% in 2000 to 35.0% in 2001, w as due to the benefit of tax planning initiatives realized in 2001. Earnings per Share...

  • Page 22
    ...to Long Term Supply Arrangements." As a result of this, in the first quarter 2000, Textron reported a cumulative effect of a change in accounting principle of $59 million (net of tax), or... of M anufacturers Life Insurance Company. ᮣ ᮣ ᮣ ᮣ ᮣ ᮣ ᮣ 20 Textron Annual Report

  • Page 23
    ...returning to operational use in the third quarter of 2003. Textron recognized revenue of $485 million in 2001 and $432 million in 2000 under the V-22 program. Under the current low -rate production level,... the fuselage) was offset by lower spending on other programs. ᮣ Textron Annual Report 21

  • Page 24
    ...divestiture of non-core product lines in the fourth quarter of 2000 and the first half of 2001, customer price reductions and the unfavorable impact of foreign exchange, partially offset by higher sales ... section. Segment Profit $188 $175 $46 99 1% 00 01 (7)% (74)% 22 Textron Annual Report

  • Page 25
    ... er and reduced sales due to the divestiture of Turbine Engine Components in the third quarter 2001 ($39 million), partially offset by the contribution from acquisitions. Profit decreased primarily due to the...% 01 3% Segment Profit $190 $193 $128 99 13% 00 48% 01 2% Textron Annual Report 23

  • Page 26
    ...of at least $325 million, of w hich $160 million has been expended at year-end 2001. The program includes an additional w orkforce reduction of approximately 2,300 and should be substantially completed... Automotive ($2 million) and Industrial Products ($15 million) segments. 24 Textron Annual Report

  • Page 27
    ...and the achievement of contract milestones, including product deliveries. Since the financial reporting of these contracts depends on estimates, w hich are assessed periodically during ... development stage of the contract, or (c) w e are unable to meet contract milestones. Textron Annual Report 25

  • Page 28
    ... benefits, and changes as long term interest rates change. At year-end 2001, w e determined this rate to be 7.25% . Changes in discount...ith the provisions of SFAS No. 106. The 2001 health care cost trend rate, w hich is the w eighted average annual projected rate of increase in the per capita cost...

  • Page 29
    ...Long-Term; P2 Short-Term) and Fitch (A Long-Term; F1 Short-Term). During the second half of 2001, both Textron M anufacturing's and Textron Finance's credit ratings w ere placed on Negative Outlook by all three ... commercial paper, securitization and long-term debt markets. Textron Annual Report 27

  • Page 30
    ...2001...29, 2001, these ... adverse changes during 2001 and w e are... December 29, 2001, and the amount... covenants at year-end 2001. We expect to negotiate...2001...2001...During 2001, ...2001, Textron Finance had $3.0 billion available under this facility. During 2001...issuance in 2001, Textron...year-end 2001, Textron's ...

  • Page 31
    ...of $47 million. Textron's Board of Directors approved the annual dividend per common share of $1.30 in 2001. Dividend payments to shareholders in 2001 amounted to $184 million, a decrease of $5 million...exposures are the European Common Currency (Euro) and the British Pound. Textron Annual Report 29

  • Page 32
    ... options and currency sw aps w as approximately $605 million at year-end 2001 and $840 million at year-end 2000. Quantitative Risk M easures Textron utilizes... (26) (3) (1,101) 3 (32) (1,113) 3 (32) (111) 22 (5) 90 (11) 90 (11) (9) (8) 16 (26) 16 (26) (2) (8) 30 Textron Annual Report

  • Page 33
    ...2002, Textron w ill perform the first of the required impairment tests of goodw ill and indefinite lived intangible assets as of December 30, 2001 and has not yet determined w hat the effect of these tests w ill be on Textron's results of operations and financial position. Textron Annual Report 31

  • Page 34
    ...of this Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. At this time, adoption of this Statement is not expected to have a material effect ... Textron Financial's ability to maintain credit quality and control costs. 32 Textron Annual Report

  • Page 35
    ...and objectivity of the financial data presented in this Annual Report. The consolidated financial statements have been prepared in conformity...the accompanying consolidated balance sheets of Textron Inc. as of December 29, 2001 and December 30, 2000, and the related consolidated statements of income, ...

  • Page 36
    ...Income For each of the years in the three-year period ended December 29, 2001 (In millions except per share amounts) 2001 $ 11,612 709 12,321 9,760 1,532 433 82 437 (342)... - - (.41) 1.51 1.90 - - (.41) 1.49 $ 4.14 10.94 (.28) - $ 14.80 $ 4.05 10.70 (.27) - $ 14.48 $ $ 34 Textron Annual Report

  • Page 37
    ... Commercial and U.S. Government receivables (less allow ance for doubtful accounts of $54 in 2001 and $58 in 2000) Inventories Due from Textron Finance Other current assets Total current ...223) 6,706 2,772 3,934 $ 16,052 5 7 24 1,026 5,848 (172) 6,738 2,744 3,994 $16,370 Textron Annual Report 35

  • Page 38
    ...for interest Cash paid during the year for income taxes (includes $2 and $9 in 2001 and 2000, respectively, for AFS disposal and $28 million in 2001 related to the Automotive Trim sale) - 400 114 82 (342) 437 (43).... See notes to the consolidated financial statements. 36 Textron Annual Report

  • Page 39
    ... 2000 $ 277 $ 1999 623 Textron Finance* 2001 $ 121 $ 2000 118 $ 1999 79 (70) 381 92 - (342) 437 - 50 (36) 365 97 - - 483 - (9) (43) 337 84 - - (1)...(11) - - (26) (1,577) (86) 2,396 (1,200) - - - (36) 353 1,427 (5) 22 $ 17 $ 182 $ 111 $ 249 $ 1,132 $ 15 $ 78 $ 35 Textron Annual Report 37

  • Page 40
    ... (2) (98) $ 166 $ 218 $ 2,226 (51) (74) (2) $ 115 $ 144 $ 2,224 * Shares issued at the end of 2001, 2000, 1999 and 1998, w ere as follow s (in thousands): $2.08 Preferred - 202; 212; 228; and 247 shares, respectively; $1.40 Preferred...the consolidated financial statements. 38 Textron Annual Report

  • Page 41
    ...ithin segments in order of the amount of 2001 revenues) and the major locations of such markets... during 2001. In 2001, management responsibility for a division previously reported in ...assets, environmental and w arranty reserves and amounts reported under long-term contracts. M anagement's estimates ...

  • Page 42
    ... rate yield curves, and discount rates commensurate w ith the risks involved. Textron Finance review s the fair value of the retained interests quarterly using 40 Textron Annual Report

  • Page 43
    ... years. Accumulated amortization of goodw ill totaled $654 million and $564 million in 2001 and 2000, respectively. Textron periodically evaluates the recoverability of intangible assets w henever events... recorded currently as an adjustment to interest expense. Premiums Textron Annual Report 41

  • Page 44
    ...2001...years beginning after December 15, 2001. Under the new rules, goodw...annual impairment tests in accordance w ith the Statements. Also, business combinations initiated after June 30, 2001... of December 30, 2001 and has not yet...and financial position. In August 2001, the FASB issued SFAS ... 15, 2001. At ...

  • Page 45
    ...of accounting has been used for all acquisitions during the past three years. Dispositions On December 20, 2001, Textron completed the sale of its Automotive Trim business to Collins & Aikman Products Company, a ... real property and have initial terms up to 30 years. Textron Annual Report 43

  • Page 46
    ...283 42 37 44 126 70 95 (14) $ 669 101 27 $ 446 121 18 $ 716 394 389 $2,300 Finance Receivables Outstanding 2001 2000 $ 2,047 $ 1,985 474 894 1,579 1,305 319 361 813 404 5,636 144 $ 5,492 683 361 5,589 116 ...interval industries, w hich accounted for 17% and 11% , respectively. 44 Textron Annual Report

  • Page 47
    ...2001...2001... of 2001 ($105...2001...2001 and 2000, respectively, and proceeds w ere approximately $1.3 billion and $1.1 billion, respectively. At year-end 2001...2001...end 2001, ...Prepayment speed (annual rate) Expected credit losses (annual rate) ...30) , 2001 2000 $...billion at year-end 2001 and 2000, respectively... 2001...

  • Page 48
    ... that provides for specific required payments for these costs. Textron reported a cumulative effect of a change in accounting principle of $59... exchange agreements, w ere 3.2% , 5.6% 46 Textron Annual Report and 5.8% at year-end 2001, 2000 and 1999, respectively. Comparable rates during the years...

  • Page 49
    ...in multi-currency agreements w ith tw o banks available through December 2002. At year-end 2001, $1.5 billion of the credit facilities w as not used or reserved as support for ...as recorded as a reduction of debt. In M arch 2001, Textron M anufacturing terminated all Textron Annual Report 47

  • Page 50
    ...2001...during 2001,...29, 2001, Textron...) December 29, 2001 Weighted Weighted Average...2001 and 2000, Textron Finance had $675 million and $509 million, respectively, of such agreements outstanding. During 2001...2001...2001 w as a $9 million liability. At year-end 2001, $7 million of after-tax loss w as reported...

  • Page 51
    ...the intent to reduce potential variability. The fair value of these instruments at December 29, 2001 w as a $11 million liability. Gains and losses on these instruments are recorded as...) (In millions) Textron M anufacturing: Debt Textron Finance: Finance receivables Debt Textron Annual Report 49

  • Page 52
    ... income w ould have been reduced by $26 million or $0.18 per diluted share in 2001, $25 million or $0.17 per diluted share in 2000, and $9 million or $0.06... of an option to purchase one share granted in 2001, 2000 and 1999 w as approximately $11, $10 and $15, respectively. 50 Textron Annual Report

  • Page 53
    ... Exercise Price $ 29.83 $ 49.80 $ 73.96 Reserved Shares of Common Stock At year-end 2001, common stock reserved for the subsequent conversion of preferred stock and shares reserved for the exercise of stock options...389 3,365 $ 166 142,937 $ 277 146,150 $ 623 153,754 Textron Annual Report 51

  • Page 54
    ...employees. The costs of the defined contribution plans amounted to approximately $48 million in 2001, $51 million in 2000 and $40 million in 1999. Defined benefits under ...(39) - $ 3,941 $ 612 6 49 (14) (65) 5 113 (70) (1) (3) $ 632 $ 603 6 45 (5) - 5 27 (68) - (1) $ 612 52 Textron Annual Report

  • Page 55
    ...in accounting for defined benefit pension plans are presented below. December 29) , December 30) , 2001 2000 January 1) , 2000 January 2) , 1999 Discount rate Expected rate of return on plan assets Annual rate of compensation increase 7.25) % 9.25) 4.50) 7.50) % 9.25 4.80 7.50) % 9.25 4.80 6.75...

  • Page 56
    ...to significant portions of Textron's net deferred tax assets and liabilities w ere as follow s: (In millions) December 29) , December 30) , 2001 2000 $ 110 140 44 9 49 30 280 $ 662 $ (387) (150) (59) (29) (625) $ 37 $ 146 ... deferred tax liabilities Net deferred tax assets 54 Textron Annual Report

  • Page 57
    ...except for distributions having an immaterial tax effect. If foreign subsidiaries' earnings w ere distributed, 2001 taxes, net of foreign tax credits, w ould be increased by approximately $61 million. ...) and $28 million for fixed asset impairment w rite-dow ns, primarily Textron Annual Report 55

  • Page 58
    ... and its equity in income (loss) from joint ventures for the three years ended December 29, 2001 is reported in cost of sales. Textron has entered into an agreement w ith Agusta to share certain costs and...the Boeing Company in the development of the V-22 tiltrotor aircraft. 56 Textron Annual Report

  • Page 59
    ...require OmniQuip to repurchase equipment related to customer defaults. The balance of this portfolio at December 29, 2001 and December 30, 2000 w as $57 million and $43 million, respectively. Leases Rental expense ... ill likely be paid over the next five to ten years. Textron Annual Report 57

  • Page 60
    ... Customer-funded Total research and development 2001 $ 366 323 $ 689 2000 $ 307 414 $ 721 1999 $ 257 413 $ 670 18. Segment Reporting Textron has five reportable segments: Aircraft, Automotive, Fastening Systems..., Turf and Specialty Products Fluid and Pow er Finance 58 Textron Annual Report

  • Page 61
    ... Finance Corporate Eliminations 2001 $ 2,788 706...11 8 - $ 532 Amortization (In millions) Depreciation 2001 $ 115 98 78 86 19 4 $ 400 2000...Aircraft Automotive Fastening Systems Industrial Products Finance Corporate 2001 11 12 16 57 22 (4) $ ...2001 $ 8,022 692 826 613 518...$ 13,090 2001 $ 1,502...2001...

  • Page 62
    ...Unaudited) (Dollars in millions except per share amounts) 2001 Q4 Q3 Q2 Q1 Q4 2000 Q3 Q2 Q1 Revenues...preferred stock and exercise of options. The average share base for the third quarter 2001 and fourth quarter 2000 excludes potentially dilutive common shares (convertible preferred stock and stock...

  • Page 63
    Selected Financial Information (Dollars in millions except w here otherw ise noted and per share amounts) 2001 $ 4,664 2,601 1,679 2,668 709 $ 12,321 $ 311 158 46 120 193 828 (437) 391 ... $ 475 292 613 64,000 23,000 $ 483 $ - $ 3,228 24) % $ $ $ 374 254 602 56,000 24,000 Textron Annual Report 61

  • Page 64
    ... Internal Audit Richard F. Sm ith Vice President Government Affairs Douglas R. Wilburne Vice President Communications and Investor Relations Richard L. Yates Vice President and Controller 62 Textron Annual Report

  • Page 65
    ... Thatcher, United Kingdom Sir William Purves Former Chairman HSBC Holdings plc, United Kingdom Horst Teltschik Former M ember of the M anagement Board BM W AG, Germany Textron Annual Report 63

  • Page 66
    ... pow er transmission components and systems for the industrial, mining, mobile equipment and transportation m arkets. Includes: AB Benzlers, Cone Drive and Textron Industrial S.p.A. 64 Textron Annual Report

  • Page 67
    ... related trademark designs and logotypes (and variations of the foregoing) are service/trademarks or trade names of Textron Inc., its subsidiaries, or joint ventures. Textron Annual Report 65

  • Page 68
    ... w eb site on the Internet at w w w.textron.com. Company Publications and General Information To receive a copy of Textron's Forms 10-K and 10-Q, proxy statement, Annual Report or the most recent company new s and earnings press releases, call (888) TXT-LINE or send your w ritten request to Textron...

  • Page 69
    Design: Benes Brand Imaging, Lexington, M A

  • Page 70
    Textron Inc. 40 Westminster Street Providence, Rhode Island 02903 (401) 421-2800 w w w.textron.com